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Shareholders Agreements

A must for any company with more than two directors playing an active role in the business of the company!

Shareholders Agreements will:

  • Provide a framework for how you intend to run the company and what shareholders’ obligations to the company are;
  • Show prospective investors that your company is well-managed, and allows you to set in stone the terms for how the company is to be run in the future; and
  • Reduce liability by providing clear guidance in the event that any disagreements or disputes arise between any business owners in the future.

If you’re still not convinced that a Shareholders Agreement is necessary, think of it as a prenup for your company.

It not only directs how important decisions are made within the company, but it also sets out clear rules on what is considered an exit event or a material breach, requiring a particular shareholder to exit the company.

If a shareholder does wish to exit, however amicably, Shareholders Agreements can help the remaining shareholders navigate their departure and how shares may be issued, transferred or disposed of.

Having a Shareholders Agreement in place from the outset enables you to be in the driving seat on the future direction of your company.  You can set all of the important terms, with any future shareholders simply signing on to the Shareholders Agreement you have already created.

Without a Shareholders Agreement already in place, a new investor may be able to dictate and take control of the form of any future Shareholder Agreement.

Frequently Asked Questions

Shareholders Agreements are written agreements between shareholders that set out their obligations and responsibilities in relation to the company and one another.

This will make decision-making more difficult, and increase conflict between shareholders who may not be performing or contributing to the business management as much as other shareholders. By having a written agreement you are agreeing from the outset about what each of you is responsible for, how any disputes of matters are to be agreed or voted on, and what each shareholder's voting rights are (i.e. in accordance with the shares they own).

Shareholders Agreements govern the relationship between the shareholders, and in doing so create harmony and a clear direction for business owners. This is always going to contribute to the success of a business.

If there is a Shareholder's Agreement in place, any income shareholder has to sign up to it. This is called a Deed of Accession. This is another reason why having a Shareholders Agreement in place from early on is a good idea as it means you get to set the terms for managing the company, and any new shareholders are required to sign on to the terms you have set.

Shareholders Agreements can be an expensive outlay initially, but the costs of disputes between shareholders will far outweigh the costs of having a Shareholders Agreement prepared. Usually, the cost of having a standard Shareholders Agreement can start at $2,000, or more, depending on how many shareholders are negotiating, the extent of the agreement already between them on the fundamental terms and how many drafts have to be worked through before the agreement is finalised.

Shareholders Agreements usually run alongside the existence of shareholders, so can exist for varying periods of time. They typically contain provisions for their expiry or termination within the Shareholders Agreement iteself.

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